IS IT BETTER TO BUY A HOME TO STAY IN OR BUY AN INVESTMENT PROPERTY AND RENT?
I am often asked, “Is it better to buy a home to stay in or buy an investment property and rent?” The answer depends on several factors.
In one of our previous articles, Home is Where the Heart is, but is it an Investment? we explain why best is BOTH! Buy an investment property in your investment entity and rent it from the entity. Then, when you want to move on, you simply move out and find another tenant.
P.S. In our article, Should You Buy Property in Your Name, a Company or a Trust?, we explain why it is better to not own property in your own name.
There are three advantages to rent from your property trust or company:
1.) You save on the rental commission or management work if you manage the property yourself, improving your net rental yield and the return on investment.
2.) You eliminate vacancy and default risk since it affects you directly. You will better plan your exit from the property, and you will most likely pay rent to yourself.
3.) You can make the property a home and renovate it as this will increase the property’s value, and you will reap the rewards of better rental income when you move out. We discuss in our article, To Renovate or Not to Renovate… That is the Question…, innovative ways to improve your property.
However, not all properties are investment properties, so it will not always be best to buy. In many instances, if you want to live in a property where the numbers do not make sense from an investment perspective, then it could be better to rent the home you want to stay in and rather acquire investment properties.
One important tip I can give is never to use “My home is an investment” as an excuse to live above your means. The monthly rent, and shortfall, on the property you live in should be well within your means.